Equity Analysis /
Pakistan

Meezan Bank: 2QCY21 analyst briefing takeaways

  • Brick-and-mortar network continues to remain relevant, 100 branches targeted by end-Dec’21.

  • Transaction volumes in digital channels have jumped. Number#1 in transactions through 1Link in Pakistan.

  • MEBL remains comfortable on capital (CAR: 18.67%, T1: 14.51%), with ROE rising to 34.7% in 1HCY21.

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
16 August 2021

MEBL held their Analyst Briefing call today to discuss the financial performance and outlook of the company. To recall, MEBL posted 2QCY21 consolidated NPAT of PKR6.7bn (EPS: PKR4.72), up 3%yoy, and 10%qoq. This took 1HCY21 NPAT to PKR12.7bn (EPS PKR: 9.00), up 10%yoy. MEBL announced an interim cash dividend of PKR1.50/sh and a bonus issuance of 15%.

  • Deposit growth surpassed expectations in 2QCY21 (up c. 30%yoy) driven by the retail segment. The economy is growing; working capital requirements have increased (courtesy rising commodity prices) and there is strong private sector demand following the schemes launched by SBP. As a result the environment is conducive for deposit growth. MEBL opened 20 new branches in 1HCY21 – having slowed down its branch expansion due to Covid. MEBL targets 100 branches to be added by end-Dec’21. Branches continue to remain relevant for MEBL where its brick and mortar strategy remains intact.

  • That said, deposit growth is expected to decelerate in CY22, with MEBL targeting 15-18% growth over the medium term. MEBL will increase efforts to revamp loan growth given the additional 2.5% tax charge on ADR, recently imposed, on investment in Government securities. MEBL has an ADR of 42%, having reported 19%yoy growth in loans in 2Q.

  • Fee income rose a sharp 80%yoy, albeit coming from a low base due to lockdown last year. This has emerged from trade and card related fee, with MEBL consistently handling 12% of Pakistan’s trade. Transaction volumes in digital channels have jumped (largest in overall transactions over 1Link in Pakistan) with transaction costs coming off. IBFT fee has also resumed.

  • MEBL remains comfortable on capital (CAR: 18.67%, T1: 14.51%), with ROE rising to 34.7% in 1HCY21. The bank continues to shore up its CAR, having recently announced to recall a PKR7bn TFC to be replaced by a PKR10bn issue. MEBL is delivering on all fronts, with aggressive balance sheet expansion, superior asset quality, and a low cost and loyal depositor base being the main positives. The share is currently trading near our Dec’21 TP of PKR140/sh.